Plain FTP suffers from a number of problems, foremost is transmission in cleartext. Unless SSL is used (I have come across very few occurrences of its use in the wild) usernames and passwords, as well as the files being transmitted, are sent over the wire unencrypted. This means anyone with a well-placed sniffer or man-in-the-middle setup between the client and server can intercept or mutilate the data without much skill or resource cost. FTP also suffers from NAT issues, in that some users must forward ports or use passive transfer mode - words most of the users who will be using your hosting service have probably never heard, don't want to hear and have no idea how to implement.
Enter SFTP: file transfer over Secure Shell. Not to be confused with FTPS, or "FTP Secure" (FTP with SSL), SFTP shares nothing in common with FTP other than its purpose: moving files around the network. SFTP uses a single, wholly encrypted tunnel from the client to the server to send and receive files. This avoids the problems associated with NAT and FTP's dual-connection implementation, provides a relatively secure means of authentication and prevents third-party manipulation of the data in transit. SSH also warns users when a server's RSA keys change so diligent users can identify and avoid potential man-in-the-middle attacks. SFTP is not, however, a perfect solution. OpenSSH, the implementation which we will be dealing with in this article, can be found on most Linux and BSD servers. Due to its ubiquity it is a prime target for 0-day exploits on one hand, and well hardened against known exploits on the other (you do keep your software patched and up-to-date, right?).
SSH, like any service that uses a username-password authentication scheme - including FTP, is vulnerable to brute-force or dictionary cracking attacks. This problem can be virtually eliminated by disabling user-pass authentication altogether and using on shared keys (please my article Passwordless or Single Password SSH with Key Exchange for instructions on implementing this configuration) however this is probably not an appropriate solution for your public hosting project as the process is difficult for regular users to implement, particularly if they are using a Windows client such as FileZilla. One solution which I highly recommend is fail2ban, it will read your sftpd logs and temporarily block an IP address associated with a specified number of failed attempts over a given period of time. I have provided simple instructions for implementing fail2ban for SSH in my article Stifling Brute Force Attacks with fail2ban. Because we are dealing with a situation where users are prone to forget their password you may wish to use fairly loose criteria in configuring fail2ban, enough failures should be tolerated that a forgetful user won't be quickly blocked but an automated attack should be picked up. You might also wish to block access to sftpd rather than all ports as affected users might understand sftp disappearing after several failed attempts but could think the server is down if they are unable to access their website (assuming it is hosted from the same server).
The "chroot jail" concept is as old as the hills and has provided a way for us to separate vulnerable services from the filesystem-at-large by faking them into thinking a certain directory is the absolute root (/) of the filesystem. In this article we're going to apply this concept to regular users using OpenSSH's built-in functionality available since version 4.9. Before then it was a royal pain to implement whereas most popular FTP daemons had supported the feature out-of-the-box for years, now SFTP can finally be considered a complete and suitable replacement.
One probably does not wish to restrict SSH access for ALL user accounts, since one probably needs remote administrative access to the machine. Therefore one shall create a group to which users who must be chroot jailed will be added. For the purposes of this article we shall call the group hosted but you may call it anything:
# groupadd hosted
Next add users to the group, if you want to make sure these users do not get regular shell access (the ability to log in and run commands etc) be sure to specify a dummy shell, such as /bin/false or /sbin/nologin (Gentoo):
# useradd -G hosted -s /bin/false demo-user
# usermod -G hosted -s /bin/false demo-user
Don't forget to give your test account a password if it is a new account.
# passwd demo-user
Now open your sshd config file (most users: /etc/ssh/sshd_config) and go to the very bottom. If there is a Subsystem sftp line already delete it. Add the following:
Subsystem sftp internal-sftp
Match Group hosted ChrootDirectory %h ForceCommand internal-sftp AllowTcpForwarding no
The Match Group directive tells sftpd to use the proceeding settings for any user in the group hosted. Now you must change the owner (and optionally group) of the user's home directory to root:
# chown root: /home/demo-user
Due to these permissions the user will not be able to create new files at the top level of their directory tree, which to you looks like /home/demo-user and to them /. That's fine because we're going to give them a directory for the site they want to host with appropriate ownership, then they can do whatever they want in that. I typically set users up thus:
# mkdir ~demo-user/demo-site.com
# mkdir ~demo-user/demo-site.com/htdocs
# mkdir ~demo-user/demo-site.com/log
# mkdir ~demo-user/demo-site.com/cgi-bin
# chown demo-user: ~demo-user/demo-site.com/ -R
Restart your sshd (/etc/init.d/ssh(d) restart) and try logging in as your jailed user via sftp. If it works, congratulations. If you chose to restrict regular SSH access you may need to include /bin/false (or /sbin/nologin etc) to your /etc/shells valid shells list or the user may not be able to log in at all. Try logging in via SSH to ensure access has been blocked.